Tech Fund Slipped Quickly From 11-Year High

By Brendan Conway

Only a month ago, the SPDR Technology Select Sector exchange-traded fund (XLK) hit an 11-year high. Since then, it’s fallen nearly 7 percent, and it has done so at a time when the Standard & Poor’s 500-stock index (SPY) is down less than 2 percent.

Yes, you can chalk up some of the weakness in the XLK to trouble in Apple’s stock. Apple makes up 20% of the portfolio, according to XTF.com. Google is about 6 percent. Microsoft (MSFT) is more than 7 percent.

But the move has more market watchers perturbed. One reason is that it puts the XLK only a touch from its 200-day moving average. Here’s more, from Kilgore:

Dennis Gartman, editor/publisher of the widely followed investment newsletter The Gartman Letter, went as far as to call the technology sector’s recent relative performance as “horrid.”

While he is still mostly bullish on the market, Mr. Gartman said he is always “mindful” when former market leaders “suddenly lose their stripes.”

On a two-year relative strength chart, with the XLK is plotted against the Standard & Poor’s 500-stock index using a base of 100, the XLK broke earlier this month below an uptrend line that started at the June 2011 relative low of 93.97.

That breakdown has pushed the XLK below the July 2012 relative trough of 101.76. Since that low was in between two nearly identical relative highs seen in April of 106.41 and in September of 106.43, falling below it confirms a longer-term “double top” reversal pattern.

Those technical breakdowns suggests the recent relative weakness the sector has been suffering appears to be more than just a short-term “pullback,” and suggests the sector is at real risk of beginning a new longer-term trend of underperformance. …

And technical analysts at Lowry Research said that while the technology sector may eventually return to a market leadership role, “there are few indications that return will occur anytime soon.”

With the XLK edging ever closer to its 200-day moving average, which many chart watchers view as a dividing line between a shorter-term pullback and a longer-term downtrend, it wouldn’t take much to do some real technical damage.

The XLK was down 1.6% at $29.49 in midday trading Friday, while the 200-day MA currently comes in at $29.13.

And if that nominal technical breakdown occurs, a test of the long-term uptrend line that has defined the bull market since the March 2009 lows, and currently extends to about $27.10, becomes increasingly likely.

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OCTOBER 19, 2012 3:21 P.M.

caleb23 wrote:

Time to buy NOK and why:

1. Now when the DOWS and S&P have almost hit all time highs, investors start to think more about cheap and potential value stocks. NOK is now only about 0,8x book value, and usually NYSE stocks are on an average about 2x book value. Therefore, I think NOK is cheap enough for its values. Another reason is NOK has been already shorted massively about 16% of its total shares.

2. Nokia´s loss is only 17 million euros any more (compared to Reuters´s consensus 277 million and Nokia´s last two previous quarters about 290 million), this was much better.

3. Nokia has 5 business parts, 4 of them are profitable

4. Nokia Siemens Networks is doing very strongly (over 300 million euros profit in 3Q. More business to come in the future: 3G in developing countries, 4G in developed and emerging countries)

5. NAVTEQ was also profitable, but NAVTEQ´s number will be better in 4Q, because of the deal with Amazon, Yahoo, Oracle and many car-companies)

6. Nokia´s feature-phone division is doing well, because of Asha family

7. Nokia´s patent portfolio earns about 500 million euros a year, and the number is still increasing

8. Nokia has cut expenses (which saves about 1 billion euros a year) and in the future Nokia does not have to spend so much in R&D either, because it has teamed up with Microsoft.

Here are Nokia´s 3Q numbers:

Eps: -0,07 euro (better than consensus -0,11 euro)

Total loss: only 17 million euros (much better than consensus 277 million euros, and last quarter loss 290 million euros)

Net cash: 3,6 billion euros (reconstructings such as closing factory in Romania and building new plant in Vietnam and so on, also because this net cash number was at the end of September, therefore some deal-payments not included).
The net cash is also better than consensus which was 3,36 billion euros (average of 35 analysts at Reuters).

Important to note: in 3Q, NSN made 323 million euros profit.

Also NAVTEQ was profitable, but NAVTEQ´s number will be better in 4Q because of the new deals like Oracle and many car-companies.

Guidance from CEO Stephen Elop: trying to turn Devices & Services division profitable soon, and next year will be the year for good fight against rivals.

Good news for 4Q:

China Mobile confirmed Lumia 920T, may arrive in November.
Product-launch invitations in Russia for November 6 (Lumia 920, Lumia 820).
AT&T Lumia 920´s exclusivity only 6 months (possibly available on other US carriers 2Q 2013).
Lumia 920 sold out in preorders in Italy.
Lumia 920 tops iPhone 5 in Phonehouse France.
Lumia 920 tops charts at Expansys UK and Expansys France.
Lumia 920 black available November 5 in UK.
Lumia 920 is already on preorders in many countries (meaning it will surely make for the holiday shopping season this year.
Lumia 800s and Lumia 900s are making the ecosystem growing fast, because the offer-campaigns just started and they are selling well.

And here are the reasons why bankruptcy is hardly true:

1. Nokia does not only make phones.

2. Nokia´s feature-phone division is still profitable.

3. Nokia Lumia 920 scores the best points among most of the tech sites today when comparing high end smart phones.
(Lumia 920 beats iPhone 5 and Galaxy S III with these features:
Floating-lens PureView camera with optical image stabilization
Wireless charging
Super sensitive and bright screen that can be used with gloves or finger nails
Premium GPS that can be used offline
Augmented reality City Lens
Free music with no advertisements
Lumia 920 also beats iPhone 5 with NFC)

4. Lumia 920 and 820 hit in time the holiday shopping season this year.

5. NSN is growing strongly.

6. Nokia´s WP 8 devices will hit more markets, for example the middle East countries (Lumia phones have not been in these countries yet till now).

7. NAVTEQ is doing well and even better in the future

8. Nokia still has 3,6 billion euros net cash

9. Nokia has regular incomes from its patent portfolio (right now, this income is around 500 million euros per year, and it is still increasing).

11. In the future, Nokia does not have to spend so much in R&D, because it has teamed up with Microsoft.

12. If Nokia really runs out of cash, Microsoft will likely lend Nokia
cash for reasonable rates, because Nokia is the most important partner for Microsoft for its Window Phone ecosystem and phone software business in general. Microsoft won´t let Nokia go bankrupt, cause it would be a huge damage for itself as well.

13. Apart from Vertu and so on, Nokia still can sell its patents, since it still has 30 000 patents in its own hands (in case Nokia needs more cash).

14. If the stock price still goes cheaper and cheaper, one day some rival would bid for Nokia, just for its patents ( Motorola was acquired by Google with 12 billion dollars, this is good to remind people who underestimate intellectual properties´ value).

15. Microsoft will bid for Nokia with higher premium if some company really bids for Nokia, because Nokia is in so close partnership with Microsoft that this also includes business strategies, business secrets and so on. Therefore, Microsoft won´t let any company acquire Nokia than itself. When it comes to Microsoft, it is still the net cash king in the world, after all its debts excluded, it still has a huge net cash above 50 billion dollars.

16. Right now, there is no way to compare Nokia to Apple among most smart phone consumers, but there is hope in the future.
For example, Nokia just signed the contract with China Mobile (who has about 680 million subscribers, which is about 70% of all subscribers in this world´s biggest nation), and even though iPhone is very popular in the US and Europe, Windows Phone OS already surpasses iOS in the world´s biggest countries beside China, such as Brasil, India and Russia. Even though in these countries more low price point phones are sold, but these are the most important emerging giants in the world where Nokia´s position and brand are still quite strong. And it may be sooner than we think when more people in these countries are able to afford high end smart phones.

17. Nokia has not lost about 1 billion dollars a quarter as the media says, because its other parts of business are profitable (3Q 2012). Therefore, 3.6 billion euros net cash should be enough for Nokia´s transition period before WP8 phones take off. There is still enough room for a third ecosystem in this world, beside emerging markets Europe has adopted WP phones in a very encouraging way (for example Italy has already over 10% market share for WP phones, considering the Lumia debut has not been a year yet, since last November only. WP OS has already grown a lot faster compared to iOS and Android in their first quarters).

18. If Microsoft really “betrays” Nokia and competes in hardware with Nokia. Nokia will take a plan B as well, for example Nokia will likely make both WP phones and Android phones at the same time.
Nokia´s board and Nokia´s biggest shareholders won´t let the company die without this last fight (if needed).

The conclusion is Nokia is for long-term and medium-term play not for short term. Just think about this, even when Apple reaches 1000 dollars, that is not even doubling, but in long term Nokia has the opportunity to triple or even more.

I know US is very important market, because Wall Street and US consumer trend give directions to market momentum around the world, still you can not neglect the power of BRIC and MIST these days.
You can calculate yourself how many people living in these 8 BRIC- and MIST-countries. In these countries, in Brazil, Russia, India, China, Mexico, Indonesia and Turkey, Nokia´s position and brand are still quite strong (except South-Korea, but you know it is Samsung´s home-country and the smallest country among those important 8 anyway).

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